Viking Freight, Inc.
This manufacturer of factory-built fireplaces was acquired in a leveraged buyout in the late 1980's. When housing starts declined in 1990, sales fell 25% and Superior was in default on its loan agreement. Due to a lack of resources, the Company significantly reduced spending on new product development, advertising and capital expenditures. Operating performance remained considerably below plan. Top management was replaced twice during 1992. A turnaround plan was implemented to build sales in new channels, introduce new products, and squeeze out costs resulting in an improvement in EBITDA from $3.5 million to $6.2 million in 1994. Unfortunately, the Company suffered serious recall problems on a new product in early 1995, setting back the recovery process and alienating customers. Sales dropped and EBITDA declined to $3.0 million.
TCW Capital retained Mr. Brodsky to assist Management in reviewing its circumstances, refining its business strategy and providing recommendations to the stakeholders of the Company to restructure its obligations.
Working with management and Mr. Schmitz, Mr. Brodsky identified several opportunities to re-build market share. The first was to offer longer payment terms to distributors. The second was to pick off highly productive distributors from two competitors who had recently merged. Mr. Brodsky and Mr. Schmitz developed a restructuring proposal whereby the Senior Lender would advance $10 million of additional availability and negotiated a formula to share proceeds upon sale of the Company in a manner that would reward the lender for the additional risk, provide management with a strong incentive and provide TCW with a recovery on its investment, which had been fully written off.
The senior lender agreed to provide the $10 million. Additionally, all parties agreed to a restructuring of the Company's obligations. The Company was sold in 1998 at a price far in excess of the 1995 value.
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